25.Relationship between materiality and audit risk.
There is an inverse relationship between materiality and the level of audit risk.
The higher the materiality level the lower the audit risk and vice versa.
When planning for specific audit procedures, if the auditor determines that the acceptable materiality level is lower, audit risk is increased.
The auditor would compensate for this by:
(a) reducing the assessed risk of material misstatement by carrying out extended or additional tests of control or
(b) reducing detection risk by modifying the nature, timing and extent of planned substantive procedures.
Evaluating the